Over the last 60 years, there has been a strong correlation between consumer sentiment and the unemployment rate. As can be seen in the chart, by a lag of 10 months, when consumer sentiment improves then the unemployment rate improves; and visa-versa.
The current consumer sentiment has run from 81.3 to 98.1, and if the correlation to the unemployment remains, then the U.S. can expect another 10 months of the unemployment rate improving.
What are some possible implications of a dropping unemployment rate?
- It means that for the next 10-12 months, the stock market may continue to be steady-to-upward as the unemployment rate improves.
- It also means the U.S. Federal Reserve will be more inclined to begin raising interest rates with such a low unemployment rate. So if you have any loans, now would be the time to re-finance them to lock in a low rate before interest rates rise.
- If you are considering making a career move, the next 10-12 months may be a favorable window in which to make that move.